F. Scott Fitzgerald once said there are no second acts in American lives. However, after having spent 20 years in the IT industry, serving in various roles from system administration to network engineer (10 of which have been in education), I’ve recently decided that my second act should be as a freelance writer covering the investor's view of the technology industry. My background in engineering gave me what I consider strong analytical skills. My 15 years of trading and investing gives me the experience to assess equities and appraise their value. I am a Warren Buffett disciple that bases investment decisions on the quality of a company's management, its growth prospects, return on equity and price-to-earnings ratio. I employ conservative strategies to increase capital while also keeping a watchful eye on macro-economic events to mitigate downside risk.

Sirius XM: Karmazin's Ghost Still Haunts

When Sirius XM (essentially) pre- announced earnings on Wednesday, I was left with a few thoughts. The first of which being that although former CEO, Mel karmazin was no longer running the ship, the company’s conservative approach as it relates to guidance remains. Then again, as evident by the stock’s 60% gain in 2012, this is a strategy that has worked – so no complaints there. But I’ll get back to this in a moment.

Ever since shares tanked to a nickel four years ago, Sirius XM has been a remarkable turnaround story. Although Mel Karmazin is often credited for having reversed Sirius’s fortunes, many investors choose to overlook that he was in charge when the company got into trouble in the first place.

40% of the company was a huge ransom retail investors had to pay to Liberty Media for essentially (by today’s standards) pennies. By and large, this is why Karmazin is no longer with the company. He would have stayed had Liberty wanted him to. At least that’s my opinion. The deal proved fruitful for Liberty – I get that. However, that Sirius was placed in the “take it or die” position sealed Karmazin’s fate. You may disagree.

Granted, by looking at the stock since 2009, Karmazin is perceived a superhero. But expand the chart by five additional years when he took over in 2004 and the story changes dramatically. It says Sirius has under-performed. Of course complications regarding the merger played a huge role in that.

Then again, it will take forever to pick and choose whose responsibility this falls on. CEOs get blamed and are credited for things they may or may not have directly impacted – this is the way it works. However, it’s a new era and Jim Meyer is now at the helm. Although he still carries the “interim” tag, I’m putting the odds at 80 to 85% that he becomes the permanent CEO. He’s the perfect fit.

First, these projections are much lower than expected. Sirius XM should blow these numbers out of the water – likely by midway through the third quarter. For instance, the company expects a slight slowdown in revenue by projecting $3.7 billion. Although it’s 9% above 2012 guidance, but it’s 4% lower than 2012 YOY versus 2011.

This is despite the recently announced auto deal with Toyota and price increases that will migrate to the 40% of subscribers that still remain. What’s more, that Sirius continues to experience solid growth in self-pay subscribers should provide a boost to revenue. This is on top of what is expected to be a 27% increase in the music royalty fee some time in 2013.

In other words, as I’ve said earlier, the stock should have no problems hitting $4.00 by the second half of the year. Investors can expect Sirius to raise guidance several more times this year. But then again, now that all of this news is out, what is left to report when it announces Q4 numbers in a couple of weeks? Will this be a “sell the news” type of situation?

Then again, the stock has too much support from Liberty for this to happen. However, it’s worth noting that Apple will report earnings on January 23 and there is broad speculation that Apple will reveal plans for its own music streaming service. Although Sirius has nothing to worry about, it will be interesting to see what happens to Pandora’s stock.

Bottom Line

Despite the conservative guidance which is “Karmazin-like”, I think it is way too early to say whether or not Meyer will be able to differentiate himself from the former leader. However, that the stock has soared as high as 10% since he’s taken over means that he’s just like Karmazin – the last four years of Karmazin anyways.

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Comments

Two things, one, what’s with the car slideshow at the bottom of your article? I’m a bit confused by it. Two, STOP WRITING ABOUT SIRIUS, WRITE ABOUT OTHER FIRMS! None of your readers apparently know anything about this firm!

I actually got the auto slideshow and sirius after lols. silly me. Sorry, what I meant to say was that none of your readers care enough about sirius and would love to read more about other firms. I’m only coming to this conclusion because of your recent articles on it which have garnered a tepid response from them, and most of those responses are bleh.

Well, don’t always assume that lack of comments means lack of interest. Besides, I write about what suits me – whenever the inspiration comes regardless of trend. Thanks for the suggestion however. But I’ve been at this for a while.

No accusation, just a reminder of YOUR own words (remember all dialogue has been archived and is easily attainable). Interesting that you state standing behind your past articles, yet you’ve changed your pen name.

Lol! I see where this is going. Tell you what, look up the name Samuel Langhorne Clemens and tell me what you come up with.

In fact, I’m going to save you some time, you probably know that name better as Mark Twain. In other words, Mark Twain was not even his real name. Now, tell me if this diminishes what he’s written about :-)